Even though Eldorado Gold (TSE:ELD) has lost US$128m market cap in last 7 days, shareholders are still up 192% over 3 years

By
Simply Wall St
Published
December 03, 2021
TSX:ELD
Source: Shutterstock

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But in contrast you can make much more than 100% if the company does well. For instance the Eldorado Gold Corporation (TSE:ELD) share price is 192% higher than it was three years ago. Most would be happy with that. On the other hand, the stock price has retraced 5.9% in the last week. However, this might be related to the overall market decline of 3.6% in a week.

While this past week has detracted from the company's three-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.

See our latest analysis for Eldorado Gold

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Eldorado Gold became profitable within the last three years. Given the importance of this milestone, it's not overly surprising that the share price has increased strongly.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

earnings-per-share-growth
TSX:ELD Earnings Per Share Growth December 3rd 2021

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worthwhile taking a look at our free report on Eldorado Gold's earnings, revenue and cash flow.

A Different Perspective

Investors in Eldorado Gold had a tough year, with a total loss of 32%, against a market gain of about 24%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 8% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Eldorado Gold , and understanding them should be part of your investment process.

Eldorado Gold is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.

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